ESG researchers highlight the hottest trends of 2022 – Financial Planning

ESG researchers highlight the hottest trends of 2022 Financial PlanningFive sustainable investment trends for 2022 Fidelity InternationalClimate change takes centrestage in MSCI’s 2022 ESG trends The Edge SingaporeESG researchers highlight the hottest trends of 2022 Financial PlanningFive sustainable investment trends for 2022 Fidelity InternationalClimate change takes centrestage in MSCI’s 2022 ESG trends The Edge SingaporeESG researchers highlight the hottest trends of 2022 Financial PlanningFive sustainable investment trends for 2022 Fidelity InternationalClimate change takes centrestage in MSCI’s 2022 ESG trends The Edge Singapore

Meggin Thwing Eastman discusses MSCI’s annual ESG Trends To Watch report.
Linda-Eling Lee believes that the core audience for people involved in environmental, governance, and investment issues has changed dramatically over the past decade. She said that ESG investing was once a topic reserved for experts at investment houses who were specialists in a few areas to serve a narrow set of clients. Many others didn’t know what ESG investments were. Lee, global head for ESG & climate research at MSCI, said that ten years ago, the idea that certain ESG issues would be financially relevant to investors and companies was still a new idea. “ESG is used all over the financial system today. It is used across all asset classes. It’s not just about the risk and investment functions of financial institutions. We are now having ESG discussions at the top of our house with the CEO and in boardrooms. “Lee’s comments Tuesday morning kicked off the unveiling MSCI’s annual ESG trends to watch report. Lee and MSCI ESG Research Director Meggin Thawing Eastman talked for nearly an hour about the top 10 trends that they believe will shape the investment market in the next decade and the future. One thing that was clear from COP26 was the ambitious and overwhelming list of pledges to reduce net-zero emissions, despite not being able to reach that goal in real life. “We know that only 10% companies are currently on track or below the one-and a half degree temperature rise that is required,” Lee stated. “It’s not really clear at the moment really for anyone what exactly the path will be to achieve a net zero portfolio given where we’re starting.” Lee stated that clients still have the temptation to present their portfolios as cleanly as possible. He also noted that climate has overtaken governance as the top concern driving investor concerns about ESG. That’s why transparency and how companies present themselves are two of the top trends in the coming year. The report’s first theme, called “The Amazon Effect”, focuses on how companies push other companies to net zero by addressing their supply chain. This could lead to lasting positive changes as companies try to out-green their competition. “Amazon and Alphabet, Microsoft, Alphabet, and Alibaba all have net-zero commitments. Some define net-zero more broadly than others. The report states that none of them can reduce their upstream supply-chain emissions unless they get their server and chip vendors to do the same. “B2B engagement could be the next frontier in climate influence as they learn how much their suppliers emit. “But, new ESG conversations on topics such as corporate transparency are still being held alongside old climate conversations like coal. Eastman stated that when cleaning up client portfolios, divesting is often considered the best option. But, deeper engagement may be better than outright abandonment. “Investors and coal have been largely discussed over the past few years. Get rid of it. It is not something you should associate with. But then what? Eastman said. “We are seeing more investors realizing that cleaning up a portfolio doesn’t do much good if the economy is still filthy and the world is still heading towards 2 degrees of warming. While there is still risk of a hotter world, if you sell these companies, you lose the ability to influence them. Eastman stated that encouraging engagement in coal and other issues in need of improvement was similar to making changes from within. “It’s an old topic that has been up for discussion for a while, but we’re now seeing a real evolution in the way investors look at it because they realize what they can and cannot do and the limits to their portfolio,” Eastman stated. Greenwashing, or the hype surrounding it, also made the list for 2022 trends. Lee stated that she expects greenwashing allegations will recede as more regulation and definitions are developed. The 2022 report found that clients should have a common vocabulary regarding ESG investments to help them make informed decisions. Ten portfolio managers may have different definitions of green investment. ESG funds are diverse because investors have different goals. The report states that investors have different ESG goals and prefer to have a variety of routes to reach their destination. It will soon be easier to avoid greenwashing and make better informed decisions as disclosures about a fund’s ESG objectives, approach(es), and quantitative financial and other characteristics all become part the default information set for investors. Eastman and Lee also see an increase in ESG ratings being used for the intended purpose. According to the report, only a few investors understood and used ESG ratings a decade ago. ESG ratings are now used by investors, companies, and the media to answer questions about a company. Lee stated that some people expect the ESG rating as a measure for corporate goodness. It’s not a measure corporate goodness. Your definition of goodness might be about a company’s carbon footprint, while mine may be about a company’s workforce diversity. ESG ratings don’t take into account all of these factors. MSCI’s annual ESG Trends to Watch Report also covers other topics such as the large-scale expansion of green bonds; the emission by private companies under public scrutiny; how food production impacts climate change; bacterial infections presenting a global health crisis and why efforts to stem climate change are unlikely to succeed.

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